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Let’s Establish Some Credit

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Everything Real Estate in the San Fernando Valley
Friday November 9, 2018
Let’s Establish Some Credit

        If you ever plan on buying a house, there is a very good chance you will need to obtain a mortgage. Unless you have been absolutely killing it at life, you will need to prove to a lender that you are a reliable bet when it comes to providing the necessary funds to purchase a house. The single most important factor in determining whether or not you will receive a loan is your credit score – an assessment of your history of making timely payments on debts you owe. Some people have absolutely no credit and are curious about how to build their credit up from scratch – this article is for those people. The short version of this article is this: If you are responsible, have a sufficient income, and pay your debts in a timely fashion, the process can take as little as six months.

I want to Build Credit, How Long Will It Take?

        At the outset, you need to open at least one credit card in your name. Further, you need to spend some of that credit, and then pay that money back. Once you have done this, the creditor reports your credit history to the three major credit bureaus; Experian, Equifax, and TransUnion.

        As a general rule of thumb, it takes between 3 and 6 months to get an accurate snapshot of your creditworthiness, your credit score prior to that is mostly irrelevant. Now that you have established credit, there are still more steps to be taken.

        Your credit history is just that, a history of how you handle your debts, which serves as a proxy for your financial responsibility. Good behavior for your credit includes one-time payments and keeping your credit balance far below your credit limit. Credit scores come in one of two varieties: Vantage Scores and FICO scores (various lenders may look at your VantageScore, but the FHA must use your FICO score). The longer your history of responsible finances, the better your credit score will be; in fact, the length of your credit history represents 15% of your total FICO score. That’s all well and good, but we’re talking about mortgages and credit – what kind of credit score do you need to get a mortgage?

What Credit Score Do I Need to be Eligible for a Mortgage?

        Initially, your credit score will be on the low-end of the “fair” range (650 -699) at roughly 660. This will generally be enough to get a mortgage, but not the best mortgages. In order to get the very best mortgages, as defined by interest rates (Interest rates are very important: let’s say you purchased a $1M house, an increase of 1% in the interest rate means $10,000 extra dollars before taking other factors into account.), you will need a “good” score (700-759); this will take more time.

I Understand that it Takes Time to Build Credit, But How do I Speed the Time Up?

        The quickest way to build your credit is to establish a long history of making payments. To do this, use your credit card reasonably, a lot of people think in the short term and make purchases they simply can’t afford on the notion that they will pay it off later – sometimes this works, but usually it hurts your credit (remember, you don’t want to be near your credit limit because that hurts your credit). Consider setting up automatic payments from your checking account to ensure that your total debt represents less than 30% of your credit limit.

        At the Chernov Team, we understand that not everyone has made the best financial decisions throughout their lives, and we understand that some people might feel like they are in a hole they cannot escape. We are here to tell you that with diligence and planning, your credit score can always be saved. Further, a good credit score will enable you to realize your dreams of being a homeowner. At the Chernov Team we understand that whoever shows up to the table with the most, leaves with the most. The Chernov Team always leaves the table with the most.

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